In a bombshell yesterday, Standard and Poor's downgraded America's credit rating for the first time in history. We've had a AAA credit rating since 1917. Through both World Wars, the Great Depression, the Cold War, several recessions, and the 9/11 terrorist attacks, nobody ever considered downgrading our AAA rating. Indeed, we are in an "unprecedented" time. This is the only time someone actually did it.
Yet is this really a bombshell? There are some who criticize the ratings agencies for their faulty analysis. (Indeed, President Obama has claimed they messed up their math by a whopping two trillion.) Yet the issue must be looked at objectively. Even S & P is right on occasion. Our debt now is 100% of the GDP. The medium-term projections are scary for entitlement spending (Medicare, Medicaid, Social Security), and the long-term projections are catastrophic. Sooner or later, we will have to end "Medicare as we know it" because we cannot afford it. Many people in my generation (at 28 years old) realize deep down what people try to deny: Social Security will not be available to us when we retire. To show our seriousness about paying for our existing entitlements we cannot afford as is, we then added yet another massively expensive entitlement under the pretense it would reduce costs, a claim the Administration no longer tries to make.
In addition to the massive spending problem, there is a weak economy. Whoever caused it for the moment I'll ignore. At the current rate of growth, it will take the majority of this decade just to get back to the level of growth seen before the crisis in 2008. Eventually, interest rates will have to be raised, and the outpouring of the money spigot will have to cease. This will damage our economic outlook, and make our debt crisis even more daunting.
Finally, there is the political polarization in Washington. Once again, I'm not going to comment on if this is a good or a bad thing. I simply recognize it for what it is. In previous times of crisis, politics was far more regional than ideological. You had conservative Democrats and liberal Republicans. Those days are done. Both parties are far more ideologically rigid. Overall, this might be a good thing. (It offers competing visions clearly defined for one.) Yet the downside is neither side is willing to compromise to get things done, because those visions are diametrically opposed to each other. A president who believes in "redistributive change" and "spreading the wealth around" will never find willing common ground with a party whose very existence today is to oppose the re-branding of America along the lines of the social democratic state. This stark polarization has also led to frequent changes in government. We are in between the formation of another political age, and everyone is trying to establish their own mandate like the ones of McKinley (who ushered in an era of Republican dominance in his era), FDR (whose New Deal Coalition set the tone of even Republicans for 30 years), and Reagan (whose vision and policies set the tone of American politics from 1980 to 2008.) Those expecting some "grand bargain" out of such conditions are deluding themselves.
Outside of a huge embarrassment, what does this mean? Ed Morrisey speculates that the economic damage might not be catastrophic. Maybe. Maybe not. We are in uncharted waters here. It could take us back into a double-dip recession, or it could not. One thing is for sure: there will be massive uncertainty. Uncertainty leads to unpredictability. Unpredictability, more often than not, leads to economic troubles.
All of this reinforces my previous view on the debt ceiling debate: there were no clear winners. Nobody "benefits" politically from this downgrade. Yet the blows are not shared equally. The buck stops with the President, as Harry Truman was so fond of saying. There is no way to spin this: President Barrack Obama is the first President of the United States to suffer a credit downgrade on his watch. He came to office promising radical change for America. That radical change has arrived, albeit not the change he had in mind. His solution (raise taxes) does nothing to actually address the problem. At the very least, it kicks the can down the road. Nothing short of fundamental tax reform (which lowers rates but ends most tax credits/deductions) will work on that front. Anyone think Obama has the ability to make that happen, even if he wants to? (Which I think part of him does.) I've been saying all year that Obama's chances for re-election were 50-55%. In light of today's events, that's no longer possible. At best, 45%. Realistically, 40%.
Yet what do Republicans do? Until Obama is out of office, there isn't much they can do. You can't get a balanced budget amendment. You can't enact the Ryan budget. The only thing you can do is hold the line, and score a few skirmish victories over coming continuing resolutions and the like. This puts added pressure to nominate a serious candidate in 2012. Sorry Ron Paul, Herman Cain and Michelle Bachmann. Much as some might deny it, that goes double for you Sarah Palin. Just in case, they better make room for Tim Pawlenty. Jon Huntsman? Did any Republican actually support him to begin with? The only serious candidate right now is Mitt Romney, and he is about to be joined by Rick Perry. They alone command the auctoritas necessary to lead a unified Republican Party behind a Republican President. They alone amongst the GOP crowd would be able to receive the Imperium from the American people to begin enacting real reform.
Yet out of those two, only Romney is actually running you say? If you want something different, then you better stop "praying for rain" and start "making it rain" at Perry for President HQ.
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